![]() MHI Hospitality
Corporation Follow-On Offering
of Common Stock
July 2010
Issuer Free Writing Prospectus
Filed Pursuant to Rule 433
Registration No. 333-167519
July 21, 2010
FREE WRITING PROSPECTUS |
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Forward-Looking Statements
Free
Writing
Prospectus
Statement
MHI Hospitality Corp. (the Company, we, us and
our) has filed a registration statement (including a preliminary prospectus) with the Securities and
Exchange Commission (SEC) for the offering to which this presentation relates.
Before you invest, you should read the preliminary prospectus in that registration
statement and other documents the Company has filed with the SEC for more complete information about the Company and this offering. You may
get these documents for free by visiting the SEC website at www.sec.gov. Alternatively, the
Company, any underwriter or any dealer participating in the offering will arrange to
send you the preliminary prospectus if you request it by contacting Stifel, Nicolaus and Company, Inc. Attn: Equity Syndicate, One South St.,
Baltimore, MD 21202, (443) 224-1433 or Janney Montgomery Scott, 60 State Street,
35 Floor, Boston, MA 02109, (617) 557-2971. The preliminary prospectus
This presentation may contain statistics and other data that may have been obtained from or
compiled from information made available by third-party service providers. While
we believe these sources to be reliable, accuracy and completeness of the information cannot be guaranteed. All property photographs included
in this presentation are from our existing portfolio. As with all investments there are
inherent risks. Please obtain and review all financial and other publicly available
materials before investing. Unless otherwise noted herein, all the financial information contained in this presentation is presented as of March 31, 2010.
This presentation contains forward-looking statements. You can identify
forward-looking statements by the use of forward-looking terminology such as believes,
expects, may, will, would,
could, should, seeks, intends, plans, projects, estimates, anticipates predicts, or potential or the negative of these
words and phrases or similar words or phrases. You can also identify forward-looking
statements by discussions of strategy, plans or intentions. Statements regarding the
following subjects may be impacted by a number of risks and uncertainties which may cause our actual results, performance or achievements to be
materially different from any future results, performances or achievements expressed or
implied by the forward-looking statements: (i) our use of the proceeds of this
offering; (ii) the competitive environment in which we operate; (iii) our ability to maintain or increase our rental rates and occupancy rates; (iv) our ability to
oversee our portfolio; (v) our ability to successfully engage in strategic acquisitions and
investments; (vi) our ability to successfully expand into new markets; (vii) the
effect of general market, economic and political conditions, including the recent economic slowdown and dislocation in the global credit markets; (viii) the
availability and cost of capital; (ix) changes in interest rates; (x) the magnitude,
sustainability and timing of an anticipated recovery in the hospitality industry and
in the markets in which we operate; (xi) the amount and yield of any additional investments;
(xii) our ability to generate sufficient cash flows to satisfy our debt service
obligations and to make distributions; (xiii) our ability to maintain adequate insurance coverage; (xiv) the terms of government regulations that affect us
and interpretations of those regulations, including changes in tax laws and regulations
affecting REITs, changes in real estate and zoning laws and increases in real property
tax rates; (xv) our ability to maintain our qualification as a REIT; and (xvi) other subjects referenced in our preliminary prospectus, including those
set forth under the heading Risk Factors in our preliminary prospectus.
The forward-looking statements contained in this presentation reflect our beliefs,
assumptions and expectations of our future performance, taking into account all
information currently available to us. These beliefs, assumptions and expectations are
subject to risks and uncertainties and can change as a result of many possible events
or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary
materially from those expressed in our forward-looking statements. You should carefully
consider these risks before you make an investment decision with respect to our common
stock. For more information regarding risks that may cause our actual results to differ materially from any forward-looking statements, see
our preliminary prospectus under the heading Risk Factors. We disclaim any
obligation to publicly update or revise any forward-looking statements to reflect
changes in underlying assumptions or factors, new information, future events or other
changes. www.sec.gov/
is also available at the following:
http://
Archives/edgar/data/1301236/000119312510139726/0001193125-10-139726-index.htm
.
th |
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Offering Summary
$3.50
$4.00 (pre 1-for-X reverse
stock
split)
(1)
Offering Price Range
TBD
Expected Pricing
Stifel Nicolaus, Janney Montgomery Scott
Joint Bookrunners
Repay outstanding indebtedness, fund planned capital
improvements and fund potential acquisition opportunities
Use of Proceeds
3.5%
4.0% payable in Q4 2010, with potential increases
in the next calendar year; to be paid out of Cash Available
for Distribution (CAD)
Anticipated Post-Offering
Dividend Yield / Timing
90 days
Lock-up Period
15% / TBD shares
Overallotment Option
TBD
Shares Offered
Approximately $110 million
Offering Size
Follow-On Offering (100% primary shares)
Structure
MHI Hospitality Corp. (NASDAQ: MDH)
Issuer
(1) All share data presented on a pre-reverse split basis |
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Gross Offering Proceeds
(1)
$125,000
Repay Existing Line of Credit
$75,198
Repay Jacksonville Crowne Plaza Loan
18,000
Raleigh Holiday Inn PIP Capital Expenditures
2,500
Transaction Expenses
8,625
Operating Reserve / Working Capital
10,677
Future Acquisitions
10,000
Total Sources
$125,000
Total Uses
$125,000
Transaction Sources and Uses
($ in thousands)
Sources
Uses
(1)
Assumes
exercise
of
the
underwriters
overallotment
option |
![]() 5
Investment
Highlights
-
Why
Invest
with
MHI?
Experienced and Invested Management Team
High-Quality Portfolio With Significant Unrealized Value
Current Yield via Post-Offering Reinstatement of Dividend
Focused Investment Strategy to Capitalize on Compelling
Market Opportunity
Attractive Stock Entry Point
Recapitalized Balance Sheet to Enable Future Growth |
![]() 6
Investment
Highlights
-
Why
Invest
with
MHI?
Experienced and Invested Management Team
High-Quality Portfolio With Significant Unrealized Value
Current Yield via Post-Offering Reinstatement of Dividend
Focused Investment Strategy to Capitalize on Compelling
Market Opportunity
Attractive Stock Entry Point
Recapitalized Balance Sheet to Enable Future Growth |
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Experienced Management Team
Andrew M. Sims
Chairman, President &
Chief Executive Officer
William J. Zaiser
Executive Vice
President, Chief
Financial Officer,
Treasurer & Secretary
David R. Folsom
Executive Vice President &
Chief Operating Officer
Chairman, President and CEO since the
Companys inception in August 2004
President of MHI Hotels Services from 1995
until August 2004 after serving for seven
years as VP of Finance and Development
Over 30 years of experience operating,
developing and owning hotel properties
Currently serves on the board of MHI Hotel
Services, LLC
Former member of the Hilton Advisory Board
EVP, CFO, Treasurer & Secretary since the
Companys inception in August 2004
Served as VP of Accounting at MHI Hotels
Services from 1990 until 2004
Certified Public Accountant
EVP and COO since January 2006
Formerly the Vice President of Paragon Real
Estate, an early stage real estate venture
focusing on distressed multifamily assets
Served in the Real Estate Securities and Debt
Capital Markets Groups as an investment
banker with BB&T Capital Markets from 2001
to 2005
Extensive relationships
with owners /
franchisors of full-
service, upper-upscale
and upscale hotel
brands
80+ years of combined
experience in the
lodging industry, capital
markets and core
geographic markets
Aligned with
shareholders
interests
via 28.2% insider
ownership of all current
shares and units
outstanding
Numerous industry
awards for completed
hotel renovations,
operating efficiency and
guest services |
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$0
$50,000
$100,000
$150,000
$200,000
$250,000
2004
2005
2006
2007
2008
2009
Initial Costs/Purchase Price
Pro Rata JV Asset
Subsequent Non-recurring Capital Expenditure Improvements
Company History & Growth
MHIs
predecessor entities and management company have operated continuously in the lodging
industry from 1957 to 2004 when MHI completed its IPO. MHI has utilized the
diverse expertise of its professionals to capitalize on market cycles and grow to its current form today
Acquired five hotels since 2004 at a total acquisition cost of approximately $125
million Since its initial public offering in December 2004, MHI has nearly doubled the
number of rooms under its control Primary driver of growth in real estate assets has
been investments in redevelopments in anticipation of the upcoming lodging recovery
Growth in Real Estate Assets ($)
$79,331
$103,245
$111,493
$163,995
$206,552
$211,479
($ in thousands)
Note: Hollywood, FL JV asset is shown at pro rata portion of initial cost
1957
1981-
1985
1990-
1995
1995-
1996
Edgar Sims begins
operations of predecessor
company with the purchase
of a 12-room motel
2009
2008
2007
2006
2005
2004
1998
Multi-unit operations began
with acquisition of
additional hotel properties;
Andrew Sims joins MHI
Portfolio repositioned with the
sale of limited service hotels;
traded up to full service
upscale hotels
20+ management
assignments for
financial institutions
Sourced offshore
capital from Malaysia
investor
Initial Public Offering
and the acquisition of
six initial hotels
Acquisition of Crowne
Plaza Jacksonville
Riverfront
Acquisition of Sheraton
Louisville Riverside and
disposition of Holiday Inn
Downtown Williamsburg
Acquisition of Crowne
Plaza
Hollywood as a JV with the Carlyle
Group and Crowne
Plaza Tampa
Westshore
Acquisition of
Crowne
Plaza
Hampton Marina
Successful
completion of $3.4
million Rights
Offering
1,383
1,673
1,723
2,049
2,191
2,188
0
500
1,000
1,500
2,000
2,500
2004
2005
2006
2007
2008
2009
Growth in Number of Rooms
Note: Includes pro rata number of rooms for Hollywood, FL JV asset
(1) Decrease resulting from renovations of Wilmington and Savannah Hotels
(1)
Corporate Highlights |
![]() 9
Investment
Highlights
-
Why
Invest
with
MHI?
Experienced and Invested Management Team
High-Quality Portfolio With Significant Unrealized Value
Current Yield via Post-Offering Reinstatement of Dividend
Focused Investment Strategy to Capitalize on Compelling
Market Opportunity
Attractive Stock Entry Point
Recapitalized Balance Sheet to Enable Future Growth |
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High-Quality, Well-Positioned Portfolio
AL
FL
SC
TN
KY
IN
OH
NC
PA
ME
VA
NY
CT
WV
MD
NJ
VT
NH
MA
DE
RI
GA
LA
MS
Wholly
owned
Resort
Lease
JV
Property
Portfolio Summary
Portfolio of 10 high-quality, primarily upper-upscale and upscale, full-service
hotels concentrated in growth markets of the Mid-Atlantic and Southern U.S.
92.0%
of
rooms
in
MHIs
current
wholly-owned
portfolio
were
renovated
to
exceed
brand
standards
in the
last four years and thus have minimal upcoming capital requirements
(% by room count)
Portfolio
STR
Chain
Scales
(1
)
:
Portfolio Geography
(1) Includes rebranding of the Holiday Inn Brownstone to Doubletree
42.5%
48.9%
8.6%
Upper Upscale
Upscale
Midscale
Year of
Year Built/
Location
Acquisition
Renovated
Wholly-Owned Properties
Hilton Philadelphia Airport
331
Philadelphia, PA
2004
1972 / 2005
Hilton Wilmington Riverside
272
Wilmington, NC
2004
1970 / 2007
Hilton Savannah DeSoto
246
Savannah, GA
2004
1968 / 2008
Sheraton Louisville Riverside
180
Jeffersonville, IN
2006
1972 / 2008
Crowne
Plaza Jacksonville Riverfront
292
Jacksonville, FL
2005
1970 / 2006
Crowne
Plaza Tampa Westshore
222
Tampa, FL
2007
1973 / 2008
Crowne
Plaza Hampton Marina
173
Hampton, VA
2008
1988 / 2008
Holiday Inn Laurel West
207
Laurel, MD
2004
1985 / 2005
Holiday Inn Brownstone
187
Raleigh, NC
2004
1971 / 2011E
Total Rooms in Wholly-Owned Portfolio
2,110
Joint Venture Property
Crowne
Plaza Hollywood Beach Resort
311
Hollywood, FL
2007
1972 / 2007
Total Rooms
2,421
Number of
Rooms |
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$108.29
$109.39
$111.00
$115.62
$104.00
$108.00
$112.00
$116.00
$120.00
Q1 '09
Q1 '10
FY '09E
FY '10E
66.1%
61.7%
68.0%
56.7%
20.0%
40.0%
60.0%
80.0%
Q1 '09
Q1 '10
FY '09E
FY '10E
33.3%
33.9%
28.5%
26.9%
10.0%
20.0%
30.0%
40.0%
Q1 '09
Q1 '10
FY '09E
FY '10E
Portfolio Operating Trends
MHIs
portfolio is poised for growth as the benefit of recent renovations and repositioning is
yet to be fully realized in hotel operating results
In addition, further portfolio upside potential should result from overall market condition
improvement RevPAR
GOP Margin
Occupancy
Average Daily Rate
Solid Core Operating Fundamentals
ADR
Declines are
Decelerating
RevPAR
Trending
Positive
Occupancy
has
Stabilized
Margins
Improving
Substantially
$109.00
66.0%
31.8%
Note: Shading indicates applicable MHI guidance range; All data includes Hollywood, FL
property $73.77
$67.50
$75.00
$66.96
$60.00
$66.00
$72.00
$78.00
Q1 '09
Q1 '10
FY '09E
FY '10E
$73.00 |
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(10%)
(5%)
0%
5%
10%
15%
20%
25%
30%
Year to Date
Running 12 Month
Crowne Plaza Hollywood
Competitive Set
Portfolio Operating Trends
(25%)
(20%)
(15%)
(10%)
(5%)
0%
5%
Year to Date
Running 12 Month
Hilton Wilmington
Competitive Set
(15%)
(10%)
(5%)
0%
5%
10%
15%
20%
Year to Date
Running 12 Month
Hilton Savannah
Competitive Set
(20%)
(10%)
0%
10%
20%
30%
40%
Year to Date
Running 12 Month
Sheraton Louisville
Competitive Set
MHIs
portfolio is strategically positioned to outperform its competitive set on a RevPAR basis
in MHIs markets
Louisville, KY
Hollywood, FL
Savannah, GA
Wilmington, NC
Competitive Market Outperformance
Source: Smith Travel Research as of 3/31/10
Note: Markets displayed above each contain a recently renovated MHI property
Capturing
share in a
down market
Starwood
Tiffany Crystal
Trophy Award
-
#1 ranked
Sheraton
Outperforming
the market -
significant
RevPAR growth
post-renovation
Significant
market
penetration
and RevPAR
growth |
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Investment Highlights -
Why Invest with MHI?
Experienced and Invested Management Team
High-Quality Portfolio With Significant Unrealized Value
Current Yield via Post-Offering Reinstatement of Dividend
Focused Investment Strategy to Capitalize on Compelling
Market Opportunity
Attractive Stock Entry Point
Recapitalized Balance Sheet to Enable Future Growth |
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$207.2
$204.2
$145.9
$112.8
$82.4
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
SHO
DRH
HT
FCH
MDH
Attractive Stock Entry Point
Enterprise
Value
per
Key
Public
Valuation
Recent Transactions
Private
Valuation
Public and Private Valuation Comparison
Based on
public
and
private
market
metrics,
MHIs
current
enterprise
value
per
key
of
$82.4K
implies
a significant discount to underlying value
Property
Date Acquired
Price / Key
Hilton Checkers
4/29/2010
$208.2
Courtyard Anaheim
4/29/2010
208.2
Homewood Suites Portfolio
4/26/2010
90.4
Hyatt Regency Boston
3/18/2010
224.9
Holiday Inn Express Times Square
2/10/2010
262.9
Hampton Inn Times Square
1/11/2010
295.1
Candlewood Suites Times Square
1/11/2010
295.2
Average
$226.4
($ in thousands)
($ in thousands)
Peer Average: $167.5
Source: SNL Financial as of 7/20/10
Note: MDH stock price equals $2.35 |
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1.7x
1.5x
1.4x
1.3x
1.3x
1.2x
1.2x
1.2x
0.9x
0.8x
0.6x
0.0x
0.2x
0.4x
0.6x
0.8x
1.0x
1.2x
1.4x
1.6x
1.8x
LHO
BEE
SHO
DRH
HST
HPT
AHT
HT
FCH
MDH
SPPR
Attractive Stock Entry Point
MHIs
stock
price
is
currently
trading
well
below
its
peers
on
a
trailing
ADR
Value
Index
(1)
multiple basis
This index
adjusts
for
the
quality
of
assets
on
a
revenue
basis,
thus
allowing for comparison
between all brands across the chain scale
ADR Value Index
Source: SNL Financial as of 7/15/2010
Note: MDH stock price equals $2.37
(1) ADR Value Index = (Enterprise Value per Key / 1000) / 2009 ADR
Peer Average: 1.2x
MHIs
Implied Stock Price
At
the
average
ADR
Value
Index
of
1.2x,
MHIs
Enterprise
Value per Key is approximately $132K,
implying an underlying stock price of $9.57 (pre-reverse split)
ADR
Value Index
Implied Offering
Price Discount
($3.50 -
$4.00)
1.0x
$ 110.3
$ 6.05
(44%) -
(36%)
1.1x
121.1
7.81
(56%) -
(50%)
1.2x
131.8
9.57
(64%) -
(59%)
1.3x
142.5
11.32
(70%) -
(65%)
1.4x
153.2
13.08
(74%) -
(70%)
Note: MHI 2009 ADR = $107.21 (wholly-owned properties only)
(1) Excludes rooms in unconsolidated joint venture
Implied Enterprise
Value / Key ($K)
(1)
Implied
Stock Price |
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Investment Highlights -
Why Invest with MHI?
Experienced and Invested Management Team
High-Quality Portfolio With Significant Unrealized Value
Current Yield via Post-Offering Reinstatement of Dividend
Focused Investment Strategy to Capitalize on Compelling
Market Opportunity
Attractive Stock Entry Point
Recapitalized Balance Sheet to Enable Future Growth |
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8.9%
4.0%
0.4%
0.3%
4.1%
0.2%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
HPT
HT
MDH
DRH
HST
LHO
AHT
FCH
BEE
SHO
SPPR
Reinstated Dividend
From its IPO in late 2004 until December 2008, MHI paid a consistent quarterly dividend of
$0.17 per quarter MHI amended its dividend policy in December 2008 and subsequently
suspended its dividend, subject to minimum REIT requirements, in the interest of
capital preservation amidst the onset of the current economic environment Application
of the proceeds from the offering to pay down outstanding balance under the current credit facility will
remove certain restrictions on paying a dividend
Assuming completion of the offering, MHI intends to reinstate a quarterly dividend payable
in Q4 2010 Targeted dividend yield of 3.5 to 4.0% with potential increases in the next
calendar year; subject to Board approval and repayment of the credit facility
Targeted dividend to be paid from CAD
Source: SNL Financial as of 7/15/2010
Note: MDH CAD payout ratio assumes an offering at a stock price of $3.75, the mid-point
of a $3.50 to $4.00 offer price range (pre-reverse split) Lodging
REITs
-
Current
Dividend
Yield
3.5%
2010E FFO
Payout Ratio:
3.5
4.0% Targeted
Dividend Yield Range
57.5%
58.8%
50.0-
60.0%
6.1%
6.1%
3.4%
N/A
N/A
N/A
N/A
N/A |
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Investment Highlights -
Why Invest with MHI?
Experienced and Invested Management Team
High-Quality Portfolio With Significant Unrealized Value
Current Yield via Post-Offering Reinstatement of Dividend
Focused Investment Strategy to Capitalize on Compelling
Market Opportunity
Attractive Stock Entry Point
Recapitalized Balance Sheet to Enable Future Growth |
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Pre
Post
Debt / Total Market Cap
75.9%
25.5%
Debt / LTM EBITDA
10.6x
4.1x
LTM EBITDA / Interest Expense
1.4x
2.3x
Floating Rate / Total Debt
58.2%
22.9%
Average Fixed Interest Rate
6.7%
6.1%
Average Floating Interest Rate
L + 3.0%
L + 2.8%
25.5%
74.5%
Pro Forma Capital Structure
Note: Assumes all available extension options are exercised prior to maturity
MHIs
use of proceeds will significantly delever
the firms balance sheet and improve the firms credit statistics while
enhancing free cash flow and liquidity condition
Once the current credit facility is repaid, MHI plans to put in place a new facility with an
estimated $30-40 million of capacity 24.1%
75.9%
Debt Overview
$0
$25,000,000
$50,000,000
$75,000,000
$100,000,000
2010
2011
2012
2013
2014
2015
Thereafter
Credit Facility
Mortgage Debt
Other Loans
Debt Maturity Schedule
Post-Offering Capitalization
Common Equity
$173.3mm
(1)
Debt
$59.2mm
(2)
Pre-Offering Capitalization
Common
Equity
$48.3mm
(1)
Debt
$152.4mm
To be repaid with
offering proceeds
(1) Assumes market equity value at $3.75 stock price, the mid-point of a $3.50 to $4.00
offer price range (pre-reverse split). Post-offering capitalization assumes exercise of the underwriters overallotment option
(2) Assumes repayment of $75,197,858 in debt outstanding on the Companys credit
facility and the $18,000,000 outstanding mortgage on the Crowne Plaza Jacksonville Riverfront |
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79.7%
77.8%
75.9%
64.3%
62.3%
52.8%
46.4%
43.1%
36.3%
36.0%
25.2%
25.5%
0.0%
25.0%
50.0%
75.0%
100.0%
SPPR
AHT
MDH
FCH
BEE
SHO
HT
HPT
DRH
HST
LHO
$276.5
$151.5
$136.7
$113.3
$88.5
$81.9
$74.9
$69.7
$60.3
$24.9
$27.1
$102.8
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
BEE
SHO
AHT
LHO
FCH
HST
DRH
HT
MDH
HPT
SPPR
4.2x
3.8x
2.1x
2.0x
1.6x
1.6x
1.5x
1.4x
1.4x
1.2x
1.1x
2.3x
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
LHO
HPT
DRH
HST
HT
SPPR
AHT
MDH
SHO
FCH
BEE
14.1x
12.4x
12.3x
10.6x
10.6x
9.9x
9.6x
7.4x
6.9x
4.1x
4.0x
4.1x
0.0x
4.0x
8.0x
12.0x
16.0x
BEE
AHT
FCH
MDH
SPPR
SHO
HT
DRH
HST
LHO
HPT
Pro Forma Capital Structure vs
Peers
Source: SNL Financial as of 7/15/2010
Note: MDH share price equals $2.37
Outstanding Debt + Pfd. Per Key
Outstanding Debt / LTM EBITDA
LTM EBITDA / Interest Expense
Debt / Total Market Capitalization
Peer Average: 9.3x
Peer Average: $107.4
Peer Average: 2.0x
Peer Average: 54.5%
($ in thousands)
Post-offering,
MHIs
leverage
levels
will
compare
favorably
to
its
lodging
REIT
peer
group
Note: Total market capitalization assumes book value of debt plus preferred (as of 3/31/10)
plus equity market cap assuming a $3.75 stock price
Note: Outstanding debt, preferred and keys as of 3/31/10
Note: Outstanding debt and LTM EBITDA as of 3/31/10
Note: LTM EBITDA and interest expense as of 3/31/10 |
![]() 21
Investment Highlights -
Why Invest with MHI?
Experienced and Invested Management Team
High-Quality Portfolio With Significant Unrealized Value
Current Yield via Post-Offering Reinstatement of Dividend
Focused Investment Strategy to Capitalize on Compelling
Market Opportunity
Attractive Stock Entry Point
Recapitalized Balance Sheet to Enable Future Growth |
![]() 22
MHI Investment Strategy
The acquisition of fully-
stabilized/performing
properties in MHIs
target
markets
Lack of availability of credit
as a result of the recent
economic downturn has led
to an increase in attractive
investment opportunities
Stabilized/Performing
Property Acquisition
Opportunities
Underperforming
but structurally
sound hotel that
requires moderate
renovation to re-
establish the hotel
in its market
Shallow-Turn
Opportunities
Hotel that is closed
or functionally
obsolete
Requires a
restructuring of both
operations and
physical plant of the
hotel
Renovation of the
building, furniture,
fixtures and
equipment
Deep-Turn
Opportunities
Upbranding
Opportunities
Properties that
can be upgraded
physically and
enhanced
operationally to
qualify for higher
quality franchise
brands
Strategy can be
executed in
concert with a
shallow or deep-
turn opportunity
Underperforming Property Acquisition Opportunities
Historically,
our
investment
strategy
focused
on
the
acquisition
of
underperforming
hotel
properties
Purchased at significant discounts to replacement cost
Candidates for renovation, upbranding and repositioning
Current market conditions are expected to present opportunities to augment our historical
strategy and acquire well-positioned, performing hotel properties at attractive
prices Current Buyers
Market
Historic (2004-2008) Sellers
Market |
![]() 23
MHI Investment Strategy
We intend to grow through acquisitions of full-service, upper-upscale and upscale
hotel properties located in the growth markets of the Mid-Atlantic and Southern
United States Our focus is on markets with significant barriers to entry and assets
located in proximity to multiple demand generators
Our
acquisition
opportunities
are
sourced
through
our
management
teams
extensive
network of industry, corporate and institutional relationships
We differentiate ourselves from most public REITs by targeting growing primary MSAs
in the Mid-Atlantic and Southern U.S. that are typically deemed secondary or tertiary
markets nationally
Our competitors tend to focus on top-10 urban full-service and top-25
select-service markets. Alternatively, we believe opportunities will arise in
our identified target markets We intend to deploy capital through different
mechanisms which will allow us to acquire properties at a low basis through:
Direct Purchase Opportunities
Used for traditional acquisitions
Distressed Debt Opportunities
Mainly loan-to-own strategy
Joint Venture / Mezzanine Lending opportunities
Utilized for deep-turn acquisitions
Disciplined Acquisitive Growth
Focus
Off-Market
Sourcing
Differentiation
Versatility |
![]() 24
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Jan08
Apr08
Jul08
Oct08
Jan09
Apr09
Jul09
Oct09
Jan10
Apr10
Jul10
90+ Day
Foreclosure
Compelling Market Opportunity
Since 2008, the U.S. lodging industry has experienced a substantial decline in operating
fundamentals Operating fundamentals deterioration, combined with lack of available
debt capital alternatives, has led to substantial distress for lodging property
owners Valuations for hotel properties have fallen significantly since 2007
As lodging asset owners are forced to undertake distressed sales, MHI believes it will be
well positioned to purchase assets at compelling prices
Distressed Hotel
Owners
Limited Debt
Capital Availability
Expectations for
Improving
Fundamentals
Compelling
Investment
Opportunities
+
+
=
Source: Commercial Mortgage Alert, March 31, 2010
Note: Includes U.S. agency and non-agency issuance
U.S. Domestic CMBS Issuance by Year
$48.2
$72.1
$58.9
$85.8
$99.5
$173.4
$210.1
$233.4
$15.8
$11.7
$9.8
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010YTD
($ in billions)
Source: Bloomberg as of 7/20/10
U.S. Hospitality CMBS Delinquencies |
![]() 25
Compelling Market Opportunity
Recent and projected industry metrics have given rise to predictions that the lodging
industry will begin a strong-comeback post Labor Day
Very
limited
construction
supply
coming
online
will
allow
current
owners
to
ramp
up
ADRs
over
the
next 12-18 months
Financing is becoming more available on conservative but reasonable terms
Smith Travel Research currently forecasts that 2011 will be the first year for annual RevPAR
growth since 2007
(2.4%)
2.5%
5.3%
6.1%
2.7%
6.1%
(6.9%)
(2.6%)
0.5%
7.6%
7.6%
6.2%
(1.7%)
(16.7%)
(1.1%)
5.8%
10.5%
5.2%
2.1%
5.0%
8.4%
8.3%
4.7%
3.3%
5.6%
3.7%
3.8%
(20.0%)
(15.0%)
(10.0%)
(5.0%)
0.0%
5.0%
10.0%
15.0%
U.S. Annual RevPAR Change
Source: Smith Travel Research
Improving Fundamentals
U.S. Annual Hotel Room Supply Growth
Source: Smith Travel Research
4.6%
3.7%
3.5%
1.7%
0.9%
0.5%
1.2%
1.7%
2.4%
3.5%
3.9%
2.8%
2.3%
1.6%
1.3%
1.0%
0.4%
0.6%
1.4%
2.7%
3.2%
1.2%
(0.1%)
0.0%
0.7%
1.5%
3.8%
(1.0%)
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Average: 2.2% |
![]() 26
Compelling Market Opportunity
Potential Acquisition Markets
Potential acquisitions are focused on Mid-Atlantic and Southern markets including
Washington, DC, Miami, FL, Atlanta, GA, Charlotte, NC, Charleston, SC, Nashville, TN
and Richmond, VA Miami
Charleston
Charlotte
Atlanta
AL
FL
SC
TN
KY
IN
OH
NC
PA
ME
VA
NY
CT
WV
MD
NJ
VT
NH
MA
DE
RI
GA
LA
MS
Richmond
Nashville
Washington, DC |
![]() 27
Investment Highlights
Experienced and Invested Management Team
High-Quality Portfolio With Significant
Unrealized Value
Current Yield via Post-Offering Reinstatement
of Dividend
Focused Investment Strategy to Capitalize on
Compelling Market Opportunity
Attractive Stock Entry Point
Recapitalized Balance Sheet to Enable Future
Growth |